Question: The Alt-A and Option ARM are complicated loans. Almost all had low teaser rates. Some were interest only for an initial period, some had “pick a payment”, others had piggy backed the down payment as a second loan, etc.

Despite the broad conditions, is there any way to calculate an average interest increase for each category? Better still, just using the median loan amount for each month, what would an average dollar or percentage increase be per mortgage?

If the loans are tied to the prime rate or short maturing T-Bill rates, the reset and increases might not be much. If tied to LIBOR or any other types of longer term interest rates, like a 10 or 20 year bond, the resets will be higher. Do the majority of loans have any cap on the annual increase (2% or 3% per year)? Terms of exotic loans may make the reset instrument moot, but it’s the only silver lining I see barring government intervention.

There are so many variables, including non loan issues such as employment status (hours per week, wage cuts, or unemployed) and equity (or negative equity) in the home in the current market, that while there is obviously a wave coming, the magnitude and damage to the economy is at least different by loan terms, non-loan economic conditions and region of the country. It may just be unknowable, if we can’t predict how many will walk away from upside down mortgages.

Does anyone know why the graph is as spiky as it is and why those spikes fall where they do? I assume it has something to do with general housing market conditions, interest rates over time, and the customary lengths of introductory rates for ARMs, but I do not know how those factors interacted to make what we see above. The graph is totally believable to me, I just wonder what narrative explains it.

It's all very simple . The debt crisis - this has also been brewing since the mid 70's . It is basically a case of too much investment moneys chasing too little safe investments . The imbalance started out several decades ago . This generated further imbalances - bubbles - down the line . It also generated a culture , by design , of debt . It's the classic case of having only two people in the country - one has a £1B and the other is debt free and has £100K in holdings . So how much can that £1B actually earn ? and how much is it actually worth ? - that's the problem . How does the person with £1B make any money on his investment ? What he does is he encourages other people to take on his investment moneys as a loan . He gets to the point that in order to be able to place his investment moneys he lends to more and more riskier people . Then the economy goes down and the market collapses and the £1B is reduced to , say , £100M and the balance is restored . We are currently going through a massive re-balancing exercise .

This pretty will guarantees that there will be no recovery for at least two more years.The imbalance started out several decades ago . This generated further imbalances - bubbles - down the line . It also generated a culture , by design , of debt . It's the classic case of having only two people in the country - one has a £1B and the other is debt free and has £100K in holdings .you write a long comment, please use paragraph breaks. Otherwise, no one will read it. Many people still won't read it, so shorter is usually better.

Thanks for this post. But is this the current mortgage rate? Pittsburgh is where I'm currently looking for loans to own a house. I'm into performing arts, that's why I moved here in Pittsburgh. Mortgage lenders are everywhere, and I'm still trying to figure out the best loan programs.

Please Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to work